Oriola Oyj

Welcome to this Oriola Corporation Financial Statement 2020 info. My name is Tuula Lehto. I'm Oriola's Communication and Sustainability Director. With me here are our Interim CEO Juko Hakala and our CFO Helena Kukkonen. Today we go through the presentations and afterwards there's a possibility for questions. Please, Juko.

You can start. Thank you, Tuula. And welcome to this financial statements webcast also from my behalf. Please let me introduce myself. My name is Jukko Hakala. I am the chief executive officer of Oriola since February 1st this year. My task is to lead Oriola in the interim period as the company is currently active in the recruitment of the new CEO. And without further ado, let's move into the topics of the day, starting with quarter four highlights. Quarter four was a better quarter for Oriola. Naturally in the quarter four, As previously in the year, the COVID pandemic continued to impact Oriola's business environment. Restrictions for citizens in both Sweden and Finland continued to impact business volumes in pharmacies also in quarter four. The healthcare, elective care volumes continue to stay below customary levels, influencing our demand. And on a positive note, the Swedish online market continued its strong growth. On quarter four, the pharmaceutical volumes continued their decline in a comparable manner to the previous quarters. There was a 2-3% increase in the market value and a related net sales increase of 1.5% in our business. Importantly, our online sales in the Swedish consumer business grew by 107% versus a market growth of 66%. And our profitability developed to 8 million euros, driven by many parts of our business. In the consumer, we increased 3.3 million euros, improvement from multiple areas. And in retail, the dose business improvement were significant factors. We continued and we continue today committed to our cost control focus, as well as our strategic programs, customer experience and 20 by 20. Then onto the full year 2020 highlights. What an exceptional year it was. During the year, COVID pandemic had a significant impact on Oriola's operating environment and operations. We started the year in Q1 strong, as the upcoming COVID pandemic produced historically high order levels for our pharmacies in Finland and Sweden. Profitability wise, Q1 was a step start for the year with its 6.9 million euros of adjusted EBIT. We then moved into Q2, which we labeled a lost quarter with its negative 300,000 euros of adjusted EBIT. The restricted consumer mobility, especially in April-May, impacted buying behavior and the use of healthcare services negatively. Public healthcare focused on the preparations for and treatment of COVID-19 patients, which resulted in a partial standstill of the elective care. In addition, securing pharmaceutical deliveries in all circumstances raised operational costs for Auriola across the board. By Q3, the growing infection rate after the summer and speeding up towards Q4 kept us on our toes. The number of infections increased rapidly towards the end of the year. More restrictions for the citizens were set in Finland, and especially in Sweden, affecting our demand. The volumes of elective care stayed below the customary level, and moreover, the changes in buying behavior based on the restricted consumer mobility affected negatively to the demand for health and wellbeing products. However, we had also learned to adapt to the pandemic operationally and also accelerated important adjacent services like click and collect, click and drive, the COVID testing services of our pharmacies. Also, our profitability started to recover in Q3 with 6.3 million euros of adjusted profit for the quarter. And through Q3, we landed on to Q4, which we discussed on the previous page. So the year was exceptional, and equally exceptional was a continued decline in pharmaceutical volumes, 0.7% negative in the full year, and a significant slowdown in the market growth as well, from 6% to 7% we experienced in 2019, down to 4%. Our net sales continued to grow, but equally slower, 3.8% versus almost 13.6% in 2019 in constant currency, except in our online sales, which grew significantly throughout the year. What was very important for us throughout the year was that the distribution and the availability of pharmaceuticals was secured well during the pandemic in both of our markets. We performed seamlessly our important role in the society and our purpose Health for Life. There were no medicine shortages on the market. We built a national medicine stock service in Sweden. Pharmacies and distribution centers have been working throughout the pandemic. We have had strict safety measures for our employees. And importantly, our NPS has stayed stable or increased, particularly in Finland. So despite these changes, and many changes in our demand and these important full year operational characteristics, our profitability remained on the 2019 level in 21 million euros. The board of directors proposes to the AGM that a dividend of three cents per share is paid for 2020. In addition, it is proposed that the AGM would authorize the board to decide on the payment of an additional dividend up to a maximum of three cents per share. Then we can go into the numbers. Thank you. Yes. Here we can see the full year numbers on high level. There's a small increase in invoicing full year, 0.9% versus 6.1% in 2019. There's a slight increase in net sales full year, 4.6%. in comparison to 10.9 in 2019. And there's a slight increase in fully adjusted EBIT up to 21 million euros in comparison to 20.5 in 2019. So the quarter-adjusted EBIT was €8 million. It was up €5.9 million from Q4 2019, and the key factors were the consumer EBIT, which was up €3.3 million, based on cost savings, for example, in our marketing and support functions. Our retail EBIT, which was up 1.5 million euros, especially contributed to by the dose business in Sweden and some recovery in our assortment business in Sweden. The pharma stayed stable or was down by 0.1 million euros, driven mainly by changes in our customer agreements. We have discussed earlier in the year about as well. our end-shaping ramp-up as well as the COVID-19 related additional costs. And finally and importantly, our group items were 1.3 million less than in Q4 2019. Let's then take a look at the operating environment. In our consumer markets, the total pharmacy market in Sweden grew in both Q4 and in full year 2020. Oriola continued to have 17% market share in the total market. And for the total pharmacy market, the share of higher profitability, prescription, Rx, and over-the-counter pharmaceuticals declined, while the share of the traded goods increased. So there was a categorical change in the market as well. And importantly, as mentioned earlier on, our online sales outgrew the market growth at 107% for the quarter and 85% for the year. Then on to the wholesale markets. In Q4, the wholesale market value increased slightly in both Finland and Sweden. However, the market volume decreased in Q4 as well as in full year 2020. Oriola market share was flat year on year in Q4 in Sweden, and it was down in Finland. And in Finland, the key factor contributing to that difference was, for example, the contracts, the Orion non-med, which was also discussed in the interim report sessions earlier in the year. In retail markets, Oriola Markets share has been stable in the dose dispensing markets in both Sweden and Finland. The traded goods and over-the-counter product supply for pharmacies in Sweden has been stable at 25% of the total market. And during Q4, we served 121 out of 819 pharmacies in Finland with staffing services. That concludes the operational environment and Why don't we then move in discussing the business areas? The consumer Q4. Net sales increased slightly. There was a significant online sales growth, as mentioned earlier on. In the brick and mortar, unfortunately, an opposite effect. Demand continued to decrease, especially in the shopping centers. There was an essential improvement in profit coming from multiple areas, and most important of those areas was cost savings in marketing and support. A €4.4 million Q4 adjusted EBIT led us to a full year 2020 adjusted EBIT increase of 2.7% in consumer being at €14.4 million for the full year. In pharma, the net sales for Q4 stayed flat. Pharmaceutical volumes slowed down, as we discussed in the highlights, due to the pandemic, and the continued elective healthcare stayed down in both of our operating markets. The Q4 wholesale market volume change in Sweden, for example, was minus 5%, and in Finland, minus 2%. The profit was negatively impacted in pharma by changes in customer agreements. Also, the end-shaping ramp-up continued to impact our profit, as well as the continued COVID-19 related additional costs. A 4.1 million Q4 adjusted EBIT in pharma led to a full year 2020 adjusted EBIT decrease of 4.9 million euros, being at 12.8 million euros for the full year. Naturally, 2020 was a challenging year for Pharma. And the key profit impacts for the full year in Pharma were the same as in Q4. Changes in customer agreements, ramp-up in end-shipping, and COVID-19-related additional costs. In retail. there was a bit higher net sales increase, 5.3% in constant currency. Demand for the products related to the pandemic remained active, especially in Sweden. Masks and hand sanitizers are good examples of these. There was improved profitability in retail, especially coming from those dispensing and the assortment Sweden business area. 0.7 million Q4 adjusted EBIT led to a full year 2020 adjusted EBIT increase of 2.9 million euros in retail being at 2 million euros. The most significant factor also for the full Jerebit in retail was the dose dispensing business in Sweden. Then on to a few additional financial review slides. I will ask our CFO Helena Kukkonen to discuss these. Helena, please.

Thank you, Juuko. Hello also from my behalf. So moving into the invoicing and net sales. So starting with the invoices, during the year we had a small or flat disc growth versus then the sort of the normally seen higher growth rates. Invoicing now reaching 3.8 billion in the full year versus then 3.7 billion in 2019. And for the quarter, there was actually a negative growth of minus 1.7 in the constant currency, which was then driven by the lower volumes. On the net sales side, we had a moderate growth driven by the higher priced pharmaceuticals and also the e-com growth. Net sales for the full year reached 1.8 billion versus then the 1.7 in 2019 and for the quarter, the growth was moderate, 1.5 in constant currency. And then moving into adjusted EBIT. So for the adjusted EBIT, we ended the year with the best quarter for the year being 8 million. Now, improvement in our profits came across our businesses. Consumer improving the most by 3.3 million. And the improvements came from multiple areas, including the cost savings. Cost savings in marketing, support functions, and so on. Pharma on the other hand was more or less flat sort of year on year. Some changes in the customer agreements and also on the cost to serve and positives coming from the expert services improvement. Retail clearly improved from last year by 1.5 million. And then this was like Jukko was saying, driven by the dose dispensing. And on the group level, we also had some cost savings. Profit for the period and earnings per share. Moving into this one, so profit for the period was 4.1 million, which is a clear improvement than from the low level last year. Profit was impacted with the adjusting items where we had a 1.2 million cost related to an honoris contract in retail, which we now then put in Q4. Earnings per share was two cents for the quarter, and for the full year it was six cents up from the four cents last year. Moving into cash flow. So we ended the year with relatively good cash flow, being 46 million for the quarter. This was driven by the good cash flow and incoming payments at the end of the year. For the full year, our operating activities cash flow was 58 million. We invested 31 million into our IT, logistics and pharmacies. Also here we have included 5 million for the investment of the doctor.se, which we did in Q2. On the financing side in Q2, we withdraw the 70 million loans to secure our cash position. And now then ended the quarter with a good cash position at 168 million. Our net interest bearing debt levels, have actually slightly higher versus than a year ago, but then on the other hand reduced by 30 million since the end of September. And this was then driven by the higher amount of cash and also lower amounts of commercial papers and loans versus then the end of September. Juko, would you like to talk about the Q4 takeaways?

Thank you, Helena. So a few key takeaways of the quarter. Our operating environment was still very much affected by the pandemic, and this influenced both the market growth, the volumes declined, as well as the market demand categories. Also, the demand channels continued to change, yielding a strong online growth for Jolla's consumer business in Sweden. Our profitability developed favorably in many areas, especially in our consumer operations and in the dose business in retail segment, all the while our pharma and distribution businesses continue to experience a similarly high cost to serve as in Q3. Very importantly, we continue to succeed in delivering our purpose health for life and availability of pharmaceuticals well in our operating markets. This has naturally been vital for Finnish and Swedish societies, and is a point of big thank you to the people of Oriola who have gone the extra mile and worked hard in the quarter and throughout the year of 2020. In 2021, we now continue to focus on the same key topics, profitability, our strategic programs, and maintaining reliable operations. And then a few more words about 2021 and moving into the outlook. The COVID pandemic is continuing and expected to continue during 2021. The severity and duration of the pandemic remain unclear in our operating environment. We now understand and have much adapted to the effects of the pandemic at Oriola, but we cannot estimate the length or the severity of its continued duration. Hence, our outlook for the year is that our adjusted EBIT on a constant currency basis stays on the same level or increases from the 2020 level. Additionally, and before we are closing the presentation part of this webcast, I wanted to announce that we will hold a Capital Markets Day on the 25th of November 2020, and once the new CEO of Oriola has started. We have not had one for quite some time, and we welcome you to discuss Oriola and our thoughts on way forward in this event. More information to follow. Now, this is the extent of our presentation, and this session is now followed by a Q&A. So, I invite questions at this point.

Thank you, Juuko. There are actually some questions online. We can start with... Petri Kajaani from Inderes is asking about our guidance. We heard just... some words about it, but there is a question about the lower bound of guidance. It states that operating profit might stay at the same level than 2020. What are the risks that might lead to this scenario? Since you have the 20 by 20 excellence cost savings coming through this year, and chirping ramp up, price efficiency improvements and cost savings, and your 2020 profitability was very weak due to the COVID. So, help me understand how this is possible with the guidance.

Thank you for the question, and Petri, this is a really important question. And I understand also the diversity in the question. In simplicity, the uncertainty in our operating environment is related to the pandemic. the length and duration of the pandemic and the severity of the pandemic. This is the uncertain fact. And that's the factor also in the guidance that sort of concludes the uncertainty we have. Outside of the pandemic effect, those are key topics that are mentioned in the question, which are also influencing our profitability. And I think they're moving ahead as planned and as indicated earlier on. So there is no change when it comes to 20 by 20, for example, or the end chirping ramp up, which was completed at the end of the last year, naturally. what we have communicated on the NSherping ramp-up is that we now move into the efficiency and effectiveness phase of the improvements in NSherping. And it will not be, I think we said in Q3, there will not be a silver bullet, rather it will be a steady improvement path. And this is progressing as planned.

Petri actually had also a couple of more detailed questions about the end-shirping. So one what you did not mention yet what Petri is asking is this cost savings targeted for this year. Can you describe those?

In end-shirping in general? From end-shirping. And I would like to come back to that topic in Q1. Also the topic of 20 by 20, I think, which was in the earlier question. And naturally in 20 by 20, we did reach 75% of the planned savings at the end of 2020. And the pandemic had also a slow down impact on resolving the final sort of 25%. So, what we are doing inside of this prioritization activity for 2021 is that we are combining these effects, and I'd like to give a bit more holistic overview of that in Q1.

Thank you.

But there is no change, I think, in essence, in those plans.

Then there's a question from Iris Theman from Carnegie. These are mainly for the consumer area now. What are the reasons behind the sales increase of 6% year-on-year in consumer? And how do you see the development in the short term?

The net sales increase in consumer was market driven. Q4 was a more active quarter in the market. So it's actually coming mostly from demand. Of course, there's this categorical change of the online growing faster than ABRIK and MORTO, which has its profitability effects, but we can clearly connect the net sales to the market phenomenon, which of course in 2020, the market was fluctuating quarter by quarter. So Q4 was a better quarter in that respect.

IRIS is also continuing that can we expect or assume that the margins in Q1 2021 in consumer will be improved from this 2.6% year on year.

Uh, we're not giving outlook, I suppose on that level, but I think the best indicator is to take a look at the pandemic, how it's going, because that has a direct impact on the demand, which then of course has a direct impact in our, in our business operations. So I would, that would be the best way I can perhaps respond on a Q1 2021 at the moment.

Um, Then I think some of those areas were covered. Then we can move to Sami Saarkamies from Nudea. There were questions related to... Still kind of like this, our guidance, that what would need to happen that Oriola will land at the previous year level.

On the 2020 level. I think it would then mean that the pandemic continues, and the severity of the pandemic stays in a sort of similar impact levels as it was in 2020.

Then there is a question related to dividend. As you suggest that divided cuts suggest that the desire to deliver from current high levels. Can you discuss the ambition level here? What are the debit, equity ratio and gearing level would you view as a sensible target in a medium term?

Which one of us takes this?

Of course, we have set our long-term targets and we have no change. We haven't communicated any new sort of gearing targets, for example. So those are still valid and if there would be any changes, we would communicate about those.

Yeah, that would have been mine as well. I think there's also earlier been questions on our long-term targets and strategy. They are well communicated on our webpage and approved in 2019. So I would refer to that when it comes to the long-term targets. And we haven't communicated median-term targets. So that would be my answer at this stage.

Sami is still continuing about the cash position. Why are you having a 100 million euro higher cash position than a year ago?

So, we had the sort of the Q2 cash, I would call it maybe hoardering, and we still remain and we are sort of securing our position still as the pandemic continues. So, we continue to have the cash reserves, I would say.

Which are operationally important.

Yes. There's one more question from Petri from Inderes. ORL's net financial expenses have been around 5-6 million euro per year, which is about 30% of your operating profit. How would you comment the current level of your financial expenses from the shareholder perspective?

I suppose you can take that if you like.

Financial expenses. Yes, of course, the financial expenses with the 70 million higher debt levels are increasing amounts and then will be for some time. That's maybe all that I would comment on that one. It is related to our current debt levels.

Then there is a question from Maria Wikström. Sorry, not seeing in which part you are coming, but could you please tell us more about CEO leaving? The profitability improvement was not as expected or was it at the board of directors thinking here?

Thanks for asking that, Maria. I think I would like to refer mostly to the communication with it on that topic. And I think we also mentioned that the more information on the topic is coming from the chairman. So therefore, I don't have I can perhaps say on a personal note that we have planned this actively together with Robert and we are also continuing actively with Robert. He has communicated that he is in an advisory role, so we work day to day together. So I think this sort of transition has been quite seamless and in a sort of very positive cooperation with Robert.

Thank you. There's one more question actually from Petri from Inderes about the price competition in Sweden, that it's been fierce during the last years and profitability of the whole sector has been under pressure. What are your views in the near future of the profitability coming up from the Aureola's perspective or from the perspective from the whole sector?

That's a really important question and one that I'd like to continue to address in Q1. And of course, this is the type of a question which is perfect for our Capital Markets Day, when we also feel very compelled to open up transparency, both to our markets, the categories in the markets, the dynamics, and also our sort of business and value generation dynamics within Oriola. But I'd like to take that on board and see if I can already start that level of transparency in Q1 and come back with an answer to that question, a really important one. And of course, it is a dynamic market, so I think the question itself already states that it is really an important point of consideration for ORIOLA and one that we are managing actively.

Then there's a question from Peter, sorry not knowing the house where you're coming from, but what is your outlook on business performance in Finland versus Sweden in next year or this year most likely? Is there clear differences between the markets?

Well, naturally, we haven't given outlook on that level. But if I sort of translate the Q4, for example, I think many of the phenomenon we experienced last year and now assuming that the pandemic continues and the severity continues as it has been last year. So I think we can translate a lot from that into this year. The dynamics are not fundamentally changing this year. And that, I suppose, will be then a good discussion point in Q1 as well.

At least now, only one more question from Petri from Inderes. A question about the Kronan apotheca or consumer pharmacy chain in Sweden. Are we the best owner for Kronan? Or would the company be willing to look for opportunities to divest it?

Also an important question, I think. One that will... I think that's also one that will be quite relevant for the capital markets day. I think it's a typical one to be addressed there. So why don't we note it down and come back to that in due course.

Thank you. If no other questions coming from the audience, then we are ready to close the

I suppose, Tuula, just thinking on the last question, I suppose it's still important to say that we are a proud owner of Kruunan.

Oh, definitely.

So that there's no hesitation on that topic. Yes, that's very good.

But as said, no pending questions here now. So I think we are ready to close this meeting. And then latest on Q1, as Jukka has been stating here, we are in this same studio again and answering your questions. And between there, of course, welcoming all the questions for us. Thank you from our end. Thank you, Jukka and Helena as well. And have a nice Friday and weekend for everybody. Thank you.

Thank you. See you soon.